Landlords win legal battle over lender's 'unfair' mortgage rate rise

08-06-2016

Landlords who sued a building society for raising their mortgage rates have won at appeal, which will result in 6,000 borrowers getting a refund.

The 350 landlords who brought the case, led by prominent property investor Mark Alexander, argued that West Bromwich Building Society's decision to raise the rate on its "tracker" mortgages was unlawful.

"Tracker" mortgages are supposed to rise and fall in line with a central interest rates such as the Bank of England's Bank Rate. But West Bromwich had argued that smallprint in its contracts entitled it to raise rates even with the Bank Rate was stable.

But the Court of Appeal ruled this morning that the building society was not entitled to vary its rates, and could also not call in the loans at short notice.

The society has agreed to re-imburse borrowers and re-set mortgage rates at a lower level.

The cost to the mutual's savers and borrowers will be £27.5m, the society said. 

In December 2013 the building society raised the rate on tracker mortgages for 6,250 borrowers by almost two percentage points - despite there being no change in Bank Rate, which has remained at 0.5pc since early 2009. This more than doubled many people's monthly repayments.

Landlords Emma and David Hughes had 12 buy-to-let properties, 11 in Huddersfield and one in Leeds. They had three tracker mortgages with West Brom which were affected by the rate rise. The couple's repayments more than doubled on all three properties.

Mrs Hughes said: “We always knew that interest rates would rise and we have always had plans for that, but this was such a shock because there was no reason to expect it, with the mortgages tracking Base Rate.” “The West Bromwich reneged on its part of that bargain and we feel cheated.”

Tracker mortgages are sold on the basis that they will track the Bank Rate, plus a margin, which is set at the time the mortgage is taken out and usually does not change.

However West Brom argued that a clause in the terms and conditions for the mortgage, which said it could change the rate "to reflect market conditions," allowed them to do this.

The Financial Ombudsman also found against landlords who appealed, saying the lender had "legitimate commercial reasons" to vary the rate. The group launched its legal battle in March 2014. Last year it lost a case in the Commercial Court after the judge, Mr Justice Teare, found that the clause did allow the bank to vary the rate. However Mr Alexander was granted leave to appeal, and won the case in the Court of Appeal today.

Mr Alexander said that ruling means the landlords in the group will not be subject to the 2pc rise, and added that it sets a precedent for other people with tracker mortgages. It also means that the building society cannot call in the loans unless borrowers are in default. He said: "This ruling sends a clear message to other lenders who have acted in a similar manner, and to those who might have been considering following suit.

"There are thought to be in the region of one million tracker buy-to-let mortgages which could have been affected if this case had gone the wrong way."

" West Bromwich Building Society issued a statement saying: "We are disappointed with the judgement handed down today. "

This judgement relates to the decision taken in 2013 to vary the interest rate margin charged in line with the terms and conditions of their buy-to-let mortgages.

"Savers, who represent the vast majority of the Society’s members, have suffered a dramatic fall in income due to lower interest rates. The Board of the Society therefore acted in accordance with its overarching duties to treat customers fairly and to act in the best interests of members as a whole, savers as well as borrowers."